2. Points To Be Discussed Today:
• Gold Prices Failed To Retake
• Ugly Price Action Post-FOMC
• Gold Prices Have Unfavorable Fundamental Conditions
• Gold Volatility And Gold Prices’ Abnormal Relationship
• Gold Volatility Trading
• Gold Prices Remain Below Former Support
• XAU/USD Daily & Monthly Chart
3. Gold Prices Failed To Retake
• Gold prices failed to retake the uptrend from
the May 2019, March 2020, and March 2021
lows, and are nearing their monthly low.
• It remains the case that “selling the rally may
be the modus operandi henceforth.”
• According to the IG Client Sentiment Index,
gold prices surprisingly have a bullish bias in
the near-term.
4. Ugly Price Action Post-FOMC
• We’ve been ambivalent about rallies in gold
prices for the past several weeks.
• Just two days ago it was noted that “what’s
happening in gold prices is nothing more than a
‘dead cat bounce’…in recent Fed meetings and
moreover, minutes from those Fed meetings.
• Gold prices haven’t fared well as US policymakers
inch ever-closer towards making a stimulus taper
announcement.”
5. Gold Prices Have Unfavorable
Fundamental Conditions
• Price action in the 48-hours around the
September Fed meeting have vindicated this
apprehension towards the gold price rally that
marked the start of the week.
• Now that the FOMC has offered some more
clarity on its taper timeline and the tension
around China’s Evergrande, the country’s second
largest property developer, is being relieved.
• Gold prices have unfavorable fundamental
conditions in the near-term.
6. Gold’s Ascent Has Now Become A
Veritable Headwind
• In particular, now that US Treasury yields
are rising, which is translating into higher
US real yields (nominal yields less
inflation).
• One of the key factors that might have
otherwise supported gold’s ascent has
now become a veritable headwind.
7. Gold Volatility And Gold Prices’
Abnormal Relationship
• Historically, gold prices have a relationship with
volatility unlike other asset classes.
• While other asset classes like bonds and
stocks don’t like increased volatility – signaling
greater uncertainty around cash flows, dividends,
coupon payments, etc. – gold tends to benefit
during periods of higher volatility.
• Falling gold volatility and weak correlations
suggests continued difficult trading may be ahead
for gold prices.
8. GVZ (Gold Volatility) Technical Analysis: Daily Price
Chart (September 2020 To September 2021)
9. Gold Volatility Trading
• Gold volatility (as measured by the Cboe’s gold
volatility ETF, GVZ, which tracks the 1-month
implied volatility of gold as derived from the GLD
option chain) was trading at 16.37.
• The relationship between gold prices and gold
volatility remains abnormal.
• The 5-day correlation between GVZ and gold
prices is -0.27 while the 20-day correlation is -
0.71. One week ago, on September 16, the 5-day
correlation was -0.98 and the 20-day correlation
was -0.45.
10. Gold Price Rate Technical Analysis: Daily Chart
(August 2020 To September 2021)
11. Gold Prices Remain Below Former
Support
• Earlier this week it was noted that “even though a
rebound has transpired over the past 24-hours.
• Gold prices remain below former support in the
symmetrical triangle that encompassed price
action from January through July.
• And more recently have traded below the
ascending trendline from the May 2019, March
2020, and March 2021 lows.
• Further weakness cannot be ruled out at this
time.”
12. Gold Prices Remain Below
• Gold prices have since failed at these former
support levels, duly treating them as resistance
after what appeared to be a ‘dead cat bounce.’
• More losses may be on the way given the posture
of momentum indicators.
• Gold prices remain below their daily 5-, 8-, 13-,
and 21-EMA envelope, which is in bearish
sequential order.
• Daily MACD continues to decline while below its
signal line, and daily Slow Stochastics are pushing
back into oversold territory.
14. Gold Prices’ Technical Structure
• Gold prices’ technical structure on the weekly
timeframe has not improved by any stretch of the
imagination in the 48-hours around the
September Fed meeting.
• The weekly 4-, 13-, and 26-EMA envelope
continues to slide lower, while weekly MACD is
dropping further below its signal line.
• Weekly Slow Stochastics are accelerating lower
below their median line. It remains the case that
“selling the rally may be the modus operandi
henceforth.”
16. Retail Trader Data
• Retail trader data shows 74.85% of traders are
net-long with the ratio of traders long to short
at 2.98 to 1.
• The number of traders net-long is 1.67%
lower than yesterday and 4.40% lower from
last week, while the number of traders net-
short is 15.61% higher than yesterday and
58.37% higher from last week.
17. Gold Price Trend May Soon Reverse
Higher
• We typically take a contrarian view to crowd
sentiment, and the fact traders are net-long
suggests Gold prices may continue to fall.
• Yet traders are less net-long than yesterday
and compared with last week.
• Recent changes in sentiment warn that the
current Gold price trend may soon reverse
higher despite the fact traders remain net-
long.